WGU; C200; Global Economics; Chapter 6

____ refers to the clustering of economic activities in certain locations. a. Internalization b. Expropriation c. Agglomeration d. Intrafirm trade

Agglomeration

In addition to FDI, other ways a firm can enter foreign markets include: a. Import and export b. Outsource c. All of these d. License and trademark

All of these

Some of the benefits of FDI to the host country are: a. Job creation b. All of these c. Advanced technology d. Capital inflow

All of these

Which of the following are examples of ownership, location, and internalization (OLI) advantages? a. All of these b. Possession of valuable foreign assets c. Replacement of cross-border markets with one firm operating in two markets d. Unique natural resources that provide advantages to the firm

All of these

What is the primary difference between FDI and FPI? a. All of these answers b. FDI is foreign direct investment and FPI is foreign portfolio investment. c. FDI is defined as a 10% or more equity stake and FPI is less than 10%. d. FDI is direct and FPI is indirect.

All of these answers

_____ refers to the ability to extract favorable outcome from negotiations due to one party's strengths. a. Accommodating power b. Expropriation c. Compromising power d. Bargaining power

Bargaining power

Which of the following is a primary cost of FDI to home countries? a. Loss of sovereignty b. Increased exports of components and services to host countries c. Capital outflow and job loss d. Increase in local competition

Capital outflow and job loss

_____ refers to the reaction of local firms to rise to the challenge demonstrated by MNEs through learning and imitation. a. Domino effect b. Bandwagon effect c. Dissemination risk d. Contagion effect

Contagion effect

_____ refers to the problems associated with unauthorized diffusion of firm-specific know-how. a. Dissemination risk b. Knowledge spill c. Technological spill d. Market imperfection

Dissemination risk

_____ knowledge can be written down and transferred without losing much of its richness. a. Implicit b. Inherent c. Tacit d. Explicit

Explicit

_____ is the amount of FDI moving in a given period (usually a year) in a certain direction. a. FDI flow b. FDI stock c. Vertical FDI d. Horizontal FDI

FDI flow

What is one advantage of FDI compared with licensing? a. FDI increases dissemination risks. b. FDI reduces investment costs. c. FDI provides tight control over foreign operations. d. FDI inhibits the transfer of implicit knowledge.

FDI provides tight control over foreign operations.

_____ refers to the total accumulation of inbound FDI in a country or outbound FDI from a country. a. Vertical FDI b. FDI flow c. FDI stock d. Horizontal FDI

FDI stock

The advantages of agglomeration result from all of the following EXCEPT: a. A skilled labor force b. Specialized suppliers and buyers c. Knowledge spillovers d. Fewer competitors in the same location

Fewer competitors in the same location

The primary political views on FDI are: a. Pragmatic nationalism b. Free market and pragmatic nationalism c. Free market d. Socialist market

Free market and pragmatic nationalism

_____ is a type of FDI in which a firm duplicates its home country-based activities at the same value chain stage in a host country. a. Platform FDI b. Horizontal FDI c. Vertical FPI d. Backward vertical FDI

Horizontal FDI

_____ refers to the replacement of cross-border markets with one firm locating in two or more countries. a. Ownership advantage b. Agglomeration c. Location advantage d. Internalization

Internalization

_____ refers to international transactions between two subsidiaries in two countries controlled by the same MNE. a. Monopolization b. Intrafirm trade c. Agglomeration d. Oligopoly

Intrafirm trade

Which of the following is a benefit of FDI to home countries? a. Decrease in competition between local firms b. Creation of new jobs c. Learning from operations d. Capital outflow

Learning from operations

Which of the following is a primary cost of FDI to host countries? a. Capital inflow b. Capital and job loss c. Loss of sovereignty d. Increase in competition between local firms

Loss of sovereignty

If a firm engages in final assembly in its home operations, then which of the following operations of the firm in a foreign country would be considered a downstream vertical FDI? a. Research and development b. Components procurement c. Marketing d. Final assembly

Marketing

____ refers to the deal struck by MNEs and host governments, which change their requirements after the initial FDI entry. a. Obsolescing bargain b. Automated bargain c. Integrative bargain d. Ongoing bargain

Obsolescing bargain

Which of the following political perspectives maintains the view that FDI has both pros and cons and can only be approved when its benefits outweigh costs? a. The radical view of FDI b. Protectionism c. The free market view of FDI d. Pragmatic nationalism

Pragmatic nationalism

Which of the following statements best describes an FDI? a. Outsourcing an in-house activity to another domestic firm b. Setting up subsidiaries in foreign locations to do in-house work c. Assigning firm activities to foreign firms in neighboring countries d. Turning over an organizational activity to an outside supplier to perform on behalf of the firm

Setting up subsidiaries in foreign locations to do in-house work

_____ knowledge is noncodifiable and its acquisition and transfer requires hands-on practice. a. Tacit b. Explicit c. Lucid d. A priori

Tacit

_____ suggests that FDI, unrestricted by government intervention, will enable countries to tap into their absolute or comparative advantages by specializing in the production of certain goods or services. a. The free-market view b. The radical view c. The monopolistic view d. Pragmatic nationalism

The free-market view

Which of the following economic perspectives on FDI has its principles rooted in Marxism? a. Pragmatic nationalism b. Laissez-faire c. The free market view d. The radical view

The radical view

Which of the following political views treats FDI as an instrument of imperialism and as a vehicle for exploitation of domestic resources by foreign capitalists and firms? a. The radical view b. Pragmatic nationalism c. The monopolistic view d. The free-market view

The radical view

Which three countries invest the most money in other countries (FDI outflow)? a. United States, France, China b. France, Germany, United Kingdom c. United States, France, Germany d. France, Germany, Japan

United States, France, Germany

Which of the following statements about the effects of FDI on host countries is true? a. While FDI creates jobs and encourages the development of management know-how within the host country, it can also lead to adverse effects on competition and capital outflow. b. FDI offers nothing but benefits to the host country. c. The only benefit to FDI is the creation of new jobs in the host country. d. Any economic benefits gained by the host country are more than offset by social and political disadvantages.

While FDI creates jobs and encourages the development of management know-how within the host country, it can also lead to adverse effects on competition and capital outflow.

A vertical FDI refers to a type of FDI in which _____. a. a firm invests in a portfolio of foreign securities but without active management of those foreign assets b. a firm produces the same products or services in a host nation as it does at home c. a firm moves upstream or downstream at different value chain stages in a host country d. a firm duplicates its home country-based activities at the same value chain stage in a host country

a firm moves upstream or downstream at different value chain stages in a host country

Firms can increase their chances of success with FDI by: a. leveraging OLI advantages in a way that is valuable, unique, and hard to imitate by rival firms. b. understanding that political realities either facilitate or constrain FDI. c. assessing whether FDI is justified, in light of other options. d. all of these answers

all of these answers

If Apple invests in iPhone dealerships in Asia but does not engage in distribution in the United States (Apple's host country), then Apple's Asian investment would be considered a(n) _____. a. upstream vertical FDI b. downstream vertical FDI c. FPI d. horizontal FDI

downstream vertical FDI

Government's confiscation of foreign assets is known as _____. a. obsolescing bargains b. sunk costs c. expropriation d. conflicting interests

expropriation

A firm manufacturing clocks in its home country and through FDI is an example of downstream vertical FDI. a. true b. false

false

A type of FDI in which the firm moves upstream or downstream in different value chain stages in a host country is called horizontal FDI. a. true b. false

false

Compared to licensing, FDI increases dissemination risks. a. true b. false

false

Dissemination risk refers to the cost that a firm has to endure even when its investment turns out to be unsatisfactory. a. true b. false

false

Domestic transaction costs tend to be higher than international transaction costs. a. true b. false

false

Explicit knowledge is noncodifiable and its transfer requires hands-on practice. a. true b. false

false

Expropriation refers to the knowledge diffused from one firm to others among closely located firms. a. true b. false

false

Expropriation refers to the rewarding of property rights and incentives to MNEs from the host country. a. true b. false

false

FDI is more suitable if the activity is marginal and common across multiple end-user industries. a. true b. false

false

Horizontal FDI refers to the amount of FDI moving out of a country in a year. a. true b. false

false

Intrafirm trade refers to international transactions between two subsidiaries in a country controlled by two different MNEs. a. true b. false

false

OLI advantages refers to a firm's quest for outsourcing (O) advantages, licensing (L) advantages, and importing (I) advantages. a. true b. false

false

Oligopoly happens when an industry is dominated by one company. a. true b. false

false

Repatriated earnings from profits of MNEs benefit the host country financially. a. true b. false

false

Technology spillovers are harmful to host firms and industries. a. true b. false

false

The demonstration effect refers to the ability of a firm to engage in an upstream stage of the value chain in a host country. a. true b. false

false

The free market type of FDI is the most prevalent type of FDI practiced. a. true b. false

false

The resource-based view argues that internalization is a response to the imperfect rules governing international transactions. a. true b. false

false

Multinational enterprises (MNEs) are: a. firms that engage in foreign acquisitions. b. firms that engage in exporting and importing. c. firms that engage in foreign direct investment (FDI). d. firms that engage in outsourcing.

firms that engage in foreign direct investment (FDI).

A mortgage broker that dominates the American Southwest has decided to expand into Mexico and several Central American countries. Its new offices in the host countries offer the same mortgage services as in the home country. This is an example of: a. FPI. b. vertical FDI. c. horizontal FDI. d. management control rights.

horizontal FDI.

A good example of agglomeration is: a. hundreds of small, medium, and large internet-based, high-tech companies all located in Silicon Valley in California. b. manufacturing plants hiring highly skilled, extensively trained employees from other manufacturing plants. c. a firm setting up a licensing agreement with a foreign firm so it can learn all of the foreign firm's secrets. d. dozens of European companies investing in FDI in other EU member countries.

hundreds of small, medium, and large internet-based, high-tech companies all located in Silicon Valley in California.

An oligopoly is an: a. industry dominated by one player. b. industry dominated by a small number of customers. c. industry dominated by a small number of competitors. d. industry populated by a large number of players.

industry dominated by a small number of competitors.

FPI refers to the _____. a. investment in a portfolio of foreign securities that do not entail the active management of foreign assets b. amount of FDI moving in a given period in a certain direction c. ability of a firm to engage in downstream stage of the value chain in a host country d. direct, hands-on management of foreign assets

investment in a portfolio of foreign securities that do not entail the active management of foreign assets

Foreign direct investment (FDI) is: a. investment in activities that manage outsourcing. b. investment in activities that control and manage value-added activities in foreign countries. c. investment in activities that manage exporting and importing. d. investment in activities that manage foreign acquisitions.

investment in activities that control and manage value-added activities in foreign countries.

Foreign portfolio investment (FPI) is: a. investment in foreign stocks and bonds that do not involve the active management of foreign assets. b. investment in activities that manage foreign subsidiaries. c. investment in foreign research and development. d. investment in activities that manage foreign acquisitions.

investment in foreign stocks and bonds that do not involve the active management of foreign assets.

Knowledge spillover refers to _____. a. a violation of the knowledge and IP rights secured by a copyright b. knowledge diffused from one firm to others among closely located firms c. the risk associated with unauthorized diffusion of firm-specific know-how d. the imperfect rules governing international transactions

knowledge diffused from one firm to others among closely located firms

A Spain-based chain of tapas bars authorizes a French company to open a chain of tapas bars using the Spanish company's name, logo, menu, process, and advertising. This is an example of: a. none of these answers b. licensing. c. location advantage. d. dissemination risk.

licensing

A firm establishing a manufacturing plant in a foreign country due to the cheap labor costs in that country is an example of the _____ advantage that the firm enjoys. a. ownership b. internalization c. externalization d. location

location

The television industry in the United States is controlled by seven giant corporations: The Walt Disney Company, CBS Corporation, Viacom, Comcast, Hearst Corporation, Time Warner, and News Corporation. Thus, the television industry in the U.S. is a typical _____ industry. a. free market b. agglomeration c. oligopolistic d. monopolistic

oligopolistic

A(n) _____ refers to an industry dominated by a small number of players. a. monopoly b. perfect competition c. oligopoly d. free market

oligopoly

An industry dominated by a small number of players is called: a. an oligopoly. b. a monopoly. c. agglomeration. d. opportunistic behavior.

oligopoly

MNEs' possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas in the context of FDI refer to _____. a. ownership b. location c. market imperfections d. internalization

ownership

OLI advantages refer to a firm's quest for _____via FDI. a. organization advantages, leadership advantages, and innovation advantages b. oligopolistic advantages, laissez-faire advantages, and intrafirm trade advantages c. outsourcing advantages, licensing advantages, and importing advantages d. ownership advantages, location advantages, and internalization advantages

ownership advantages, location advantages, and internalization advantages

The three OLI advantages are: a. opportunity, location, internalization. b. ownership, location, internationalization. c. ownership, location, internalization. d. ownership, leverage, internalization.

ownership, location, internalization.

Firms prefer FDI to licensing because FDI_____. a. protects the firm from economic agglomeration b. requires complete dissemination of technological know-how to host nation entity c. increases the chances of opportunism when dealing with a host nation entity d. provides the firm with direct ownership to its foreign assets

provides the firm with direct ownership to its foreign assets

Costs that a firm has to endure even when its investment turns out to be unsatisfactory are referred to as _____. a. switching costs b. sunk costs c. replacement costs d. cost overruns

sunk costs

In Round Two of FDI negotiation process between MNEs and host governments, _____. a. the MNE is not willing to enter in the absence of some government assurance b. the MNE enters the host market and earns profits c. the government may demand renegotiations of the deal d. the previous deal becomes obsolete

the MNE enters the host market and earns profits

An FDI investment is not considered a zero-sum game. a. true b. false

true

An FPI does not provide management control rights to the investing firm. a. true b. false

true

Capital inflow can help improve a host country's balance of payments. a. true b. false

true

Compared to licensing, FDI provides more direct and tighter control over foreign operations. a. true b. false

true

Economic agglomeration is an example of an OLI advantage. a. true b. false

true

FDI stock refers to the accumulation of inbound FDI in a country or outbound FDI from a country. a. true b. false

true

FPI refers to investment in a portfolio of foreign securities that do not entail the active management of foreign assets. a. true b. false

true

Firms become MNEs because FDI provides OLI advantages that they otherwise would not obtain. a. true b. false

true

In order to become an MNE, an exporter has to undertake FDI. a. true b. false

true

In the context of FDI, ownership refers to MNEs' possession and leveraging of certain valuable, rare, hard-to-imitate, and organizationally embedded (VRIO) assets overseas. a. true b. false

true

Internalization can help reduce opportunistic behavior in international trade. a. true b. false

true

Internalization refers to the replacement of cross-border markets with one firm locating in two or more countries. a. true b. false

true

Intrafirm trade enables MNEs to better coordinate cross-border activities. a. true b. false

true

Investing in FDI will increase the home firm's exports of components and services. a. true b. false

true

MNEs encounter sunk costs when they face an obsolescing bargain with the host country. a. true b. false

true

The benefit of ownership lies in the combination of equity ownership rights and management control rights. a. true b. false

true

The radical view treats FDIs as an instrument of imperialism. a. true b. false

true

Harton, a car manufacturer based in UK, only assembles cars and does not manufacture components in the UK. But in France, Harton enters into components manufacturing through FDI. Harton's investment in France would be an example of a(n) _____. a. horizontal FDI b. upstream vertical FDI c. downstream vertical FDI d. FPI

upstream vertical FDI

A large-scale French dairy that produces milk, cheese, yogurt, and other related products decides to buy a chain of mini-marts located throughout many EU countries. Their objective is to sell their dairy products, as well as other products, through these mini-marts. This is an example of: a. management control rights. b. horizontal FDI. c. vertical FDI. d. FPI.

vertical FDI.